The agony of AIG: Time to educate myself

“Zombie insurance company” doesn’t exactly roll off the tongue, does it?  We shall work on a suitable epithet.

As usual, Joe Nocera of the NYT offers pith and insight into the AIG mess.

And Yves Smith at Naked Capitalism offers some sophisticated outrage.  I’m a big believer in the concept of the enlightened rant, which may be why NakedCapitalism.com is among my daily visits.

So far, my summary understanding of the AIG mess is something like this:  The company diligently acquired a AAA credit rating and then recklessly exploited it by selling “naked” (unhedged, no offsetting position) credit-default-swaps to anyone and everyone.  Unlike the failing banks, AIG wasn’t directly involved in the subprime securities business, but their problems became AIG’s problems when many of them began defaulting on their obligations — obligations which were insured by . . .  AIG.  So now AIG also has obligations that no honest financial institution can pay.  And because AIG is one of the world’s largest corporations, it accounts for huge chunks of many institutions’ stock and bond/loan portfolios.  “Too big to fail,” blah blah blah.

To be updated with more links . . .

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2 Responses to “The agony of AIG: Time to educate myself”

  1. democommie Says:

    Ranjit:

    Here’s an unenlightened rant.

    I don’t like any of this shit that’s happening (well, maybe watching a bunch of zillionaires get their ill-gotten zillions stolen by another scammer does give me just a smidgeon of schadenfreude) but what really harshes my buzz is that the same “geniuses” who were telling the public that there was no “down” on the graph are now bleating about how it’s inconcievable that these same folks could let their greed and stupidity cause them to lose their fortunes and their very domiciles. I don’t even own a teevee but I know these asshats were on the tube week in and week out for most of the last eight years crowing about how wonderful all of these “investment vehicles” were. It turns out that they are nothing but a bunch of sales people for whom the only goal is a commission or bonus. Lying bastards.

  2. sandy Says:

    I have been trying to get an understanding on this credit default swap, if I understand right, if I have a securitized loan..anyone can take out the CDS on it. Fifty people can take it out on it. Now for the real question…Who in their right mind would insure something intangable to someone with no loss risk??

    How about this for a theory…A lender makes a loan that they know is bad, sells it right away to a securitized fund, services the fund collecting and gathering information on the loan, takes out “Credit Default Swap” and collects on the default. This sounds like a perfect setup for the possiblity of insider trading. I’m surprized that this has never been mentioned.

    Also, If a defaulted mortgage in a securitized fund is insured or charged off, who owns the note and mortgage? Who gets the property at foreclosure?

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